ECON 1P92 Lecture Notes - Excess Supply, Monetary Policy, Interest Rate

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ECON 1P92 Full Course Notes
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ECON 1P92 Full Course Notes
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Chapter 28: money, interest rates, and economic activity. Financial assets: money- currency plus checkable deposits, bonds- bought and sold in bond market. Bond is a promise to make payments at dates in future. Present value is the current value of one or more payments or receipts made in the future- the (discounted) present value (pv) of the bond. The present value of any asset [e. g. bond] that yields a stream of payments over time is negatively related to the interest rate. Pv of an asset is the highest price someone would pay to own the future stream of payments from the asset. Any price lower than the present value creates excess demand for the asset- drives up the assets price. The equilibrium market price of an asset is the pv of the income stream that the asset produces. Negative relationship between interest rates and asset prices.

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